While getting a class certified is often a serious fight, defeating class allegations at the demurrer stage is generally rare. But never say never. In Schermer v. Tatum (March 18, 2016), the Fourth Appellate District, Division One, affirmed a trial court ruling sustaining a demurrer to class allegations in the plaintiffs' second amended complaint (SAC). The plaintiffs brought a class action on behalf of residents who live in the 18 mobilehome parks. The plaintiffs alleged they were subjected to uniform unconscionable lease agreements and leasing practices by a collection of related defendants. The SAC involved 18 mobilehome parks allegedly owned and/or operated by two defendants (Tatums and Kaplan), and were managed through defendant Mobile Community Management Company (MCM). The plaintiffs also named as defendants the 18 "single-purpose" business entities that are each described as the owners of one of the mobilehome park in California.

The Court of Appeal began by summarizing the first amended complaint, the demurrer hearing related to it, and the SAC. And that summary is all you need to read to know where things are headed. The Court described the "highlights" of the FAC as follows:

In the FAC, plaintiffs again alleged defendants Tatum and Kaplan, through MCM, engaged in unlawful conduct at each of the 18 mobilehome parks. Specifically, they alleged defendants "charg[ed] excessive rent, pursu[ed] arbitrary evictions, and implement[ed] unreasonable polices." Plaintiffs further alleged in their FAC that defendants Tatum and Kaplan took "advantage of vulnerable prospective and current residents" including "non-[E]nglish speaking and elderly residents" who, plaintiffs claimed, were "especially susceptible" to defendants' unlawful business practices. Plaintiffs alleged defendants "most egregious practice" was the use of a "one-sided, standardized lease" agreement. Plaintiffs provided 32 examples of lease clauses that allegedly violated California's Mobilehome Residency Law (Civ. Code, § 798 et seq.; MRL).

Plaintiffs' FAC also set forth about 11 "factors" that plaintiffs alleged showed procedural unconscionability between plaintiffs and the putative class, on the one hand, and defendants, on the other. Such factors included among others "residents' poor socio-economic background" and defendants' "knowledge of residents' vulnerability to oppression." Plaintiffs also listed about 17 examples of substantive unconscionability in their FAC in connection with defendants' use of the standardized lease agreement in the 18 mobilehome parks. As before, plaintiffs' class action allegations included any person who had an ownership interest in a mobilehome in any of the 18 parks, and a senior citizen and non-English-speaking subclass.

Slip op., at 3-4. Then, discussing the hearing on the demurrer to the FAC, the Court said, "At the demurrer hearing, plaintiffs' counsel agreed with the court that plaintiffs' FAC was 'a mess' and counsel admitted they 'did a horrible job in succinctly and systematically putting forth facts that show what the [FAC] -- what the case is about and how it shows a pattern of conduct that is deserving of being treated in a class action.' " Slip op., at 4. Not looking good.

Describing the subsequently issued Order on the demurrer to the FAC, the Court set forth key parts of the trial court's ruling:

"Plaintiffs allege multiple causes of action, all of which related in some way to the Lease Agreements utilized at the Defendants['] parks. Based upon the allegations in the [FAC], it appears that some of the claims involved the alleged unconscionability of the contracts themselves, while others involve each Defendant's alleged actions in executing or enforcing the individual contracts as to individual Plaintiffs. [¶] The Court finds that multiple factual allegations predominate. Plaintiffs['] measure of damages will be unique to each park. The proposed class does not all reside at the same location or under the same circumstances. Each putative class member is/was a resident at one of the eighteen separate mobilehome parks located throughout the State of California, giving rise to individualized factual questions related to causation, liability, and damages.

"Example of the individualized issues include the remedy (determining excess rents paid at each space requires a factual showing of fair market values for rents in a particular area [at] a particular time and park-by[-]park appraisal). Further, there appear to be multiple lease agreements. Although Plaintiffs allege Defendants used a 'standardized' Lease Agreement, they attach at least five different variations of the Lease Agreement and/or Amendments to the Lease Agreement. (See Exhibits 'A,' 'B,' 'C,' 'D,' and 'E,' attached to the [FAC].)

Slip op., at 5. The trial court went on to identify additional issues, including the fact that many class members would not be able to state certain claims if they had not attempted to sell their homes, and there were no putative class representative plaintiffs for many of the mobilehome parks.

The SAC filed by the plaintiffs attempted to address many of the trial court's concerns, but a number of its allegations were found by the trial court to be conclusory assertions about defendants, and not allegations of fact. The SAC did not address damage issues that would arise, which included the fact that several of the mobilehome parks were in cities with their own rent control ordinances. The trial court was particularly concerned by the fact that each agreement at each park with each potential class member was individually negotiated and by the fact that a unique damage calculation would be required for each park and each person at each park. Moreover, the trial court took notice of the fact that many individuals were involved in their own litigation with their own park.

After discussing the procedural background, the Court made sure to note that it is undisputed that class allegations can be decided on demurrer:

It is beyond dispute that trial courts are permitted to decide the issue of class certification on demurrer. (Tucker, supra, 208 Cal.App.4th at p. 212; see Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440 [noting the issue is "settled" that courts are authorized to "weed[] out" legally meritless class action suits prior to certification by demurrer or pretrial motion].) A trial court may sustain a demurrer to class action allegations where " 'it concludes as a matter of law that, assuming the truth of the factual allegations in the complaint, there is no reasonable possibility that the requirements for class certification will be satisfied. [Citations.]' [Citations.]" (Tucker, at p. 211, italics added; see Canon U.S.A., Inc. v. Superior Court (1998) 68 Cal.App.4th 1, 5 [noting that when the "invalidity of the class allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, the class issue may be properly disposed of by demurrer or motion to strike," and noting that "[i]n such circumstances, there is no need to incur the expense of an evidentiary hearing or class-related discovery"].)

Slip op., at 14. Much of the discussion that follows is unsurprising, given the discussion of the trial court's analysis. The Court did wade into the murky waters of attempting to categorize an allegation as either an "ultimate fact" or a "conclusion":

We conclude plaintiffs' allegations in their SAC—which were noticeably absent from their original complaint—that defendants implemented a uniform policy and procedure in each and every lease transaction with plaintiffs and the putative class members over a four-year period (i.e., the proposed class period), in each of the 18 mobilehome parks owned and/or operated by Tatum and Kaplan, are not properly admitted for purposes of demurrer because such allegations are not ultimate facts but rather merely contentions and/or improper factual conclusions.

Slip op., at 17-18. In my experience, this is very much an eye-of-the-beholder call that deserves a clarifying opinion with more objective guidance as to how to distinguish between the two.

In any event, the Court agreed with the trial court's assessments, finding, in particular, that the individual nature of the transactions was such that each course of dealing is unique, and damages, because of different circumstances, park locations, and local ordinances, are also unique to each potential class member. The Court declined to grant leave to amend to the plaintiffs, agreeing with the trial court that the problems were insurmountable. The lesson here is that overreach can be fatal. It might have been more workable to describe uniform leasing practices at one mobilehome park and seek class relief for the aspects of the transaction that were common to all of the residents, while, at the same time, addressing how damages will be calculated and distributed.

The "separate location" argument seems better suited to this sort of consumer circumstance than it is in the wage & hour context, where defendants nevertheless try the "each of our stores is unique and different" argument, as if they have no uniform policies regulating employees and allow each store to run their own affairs like the wild West. Hey, at least this Court cited Brinker (but it felt like an ironic cite to me).

When it comes to certification, you can fix almost any problem other than commonality (community of interest). Inadequate representative? Get a new one. Problem with inexperienced class counsel? Co-counsel. Numerosity is not really amenable to correction, but most of the time firms just pass on the tiny classes. But commonality, there's where the rubber meets the road. In Hendelman
v. Los Altos Apartments, L.P. (Jul. 22, 2013; pub. ord.
Aug. 20, 2013), the Court of Appeal (Second Appellate District, Division Three) affirmed a trial court order denying plaintiffs' motion for class certificaiton for lack of ascertainability, community of interest, and superiority. The bulk of the Court of Appeal opinion addresses the commonality-related failings.

The Court first held that the warranty of habitability claim
was not suitable for resolution through common proof:

[T]he mere “existence of a
prohibited (uninhabitable) condition or other noncompliance with applicable
code standards does not necessarily constitute a breach of the warranty of
habitability.” (Friedman et al., Cal. Practice Guide: Landlord-Tenant (The
Rutter Group 2012) § 3:39, p. 3-13, citing Green
v. Superior Court, supra, 10 Cal.3d at pp. 637-638.) “Whether the defect or
code noncompliance is ‘substantial’ (and thus a cognizable breach) or ‘de minimis’
(no actionable breach) is determined on a case-by-case basis.” (Friedman et
al., supra, § 3:40, p. 3-13.) “In
considering the materiality of an alleged breach, both the seriousness of the
claimed defect and the length of time for which it persists are relevant
factors. Minor housing code violations standing alone which do not affect
habitability must be considered de
minimis and will not entitle the tenant to reduction in rent; and likewise,
the violation must be relevant and affect the . . . common areas which [the
tenant] uses.” (Hinson v. Delis
(1972) 26 Cal.App.3d 62, 70, disapproved on other grounds by Knight v. Hallsthammar (1981) 29 Cal.3d
46, 55, fn. 7.) Stated otherwise, whether a particular defect or violation of a
housing code constitutes a breach of the implied warranty of habitability
depends on the severity and duration of the defect or violation. Breach is a
rebuttable presumption affecting the burden of producing evidence. (Friedman et
al., supra, §§ 3:46 to 3:47, pp. 3-14 to 3-15.)

Slip op., at 11. The
trial court concluded that even the code violations impacting all tenants did
so differently and to different degrees, and the Court of Appeal, giving
deference to the trial court, agreed.
One question raised by this decision is whether variation in entitlement
to damage tainted the analysis as to whether liability could be shown through
common proof, especially where strict liability is imposed on the landlord. At times the Court seems to conflate proof of liability with nominal damages.

The Court then found that the claim for increased rent
injected the same individualized questions about whether services to each
tenant were reduced in any substantial manner that amounted to an implied
increase in rent.

As to the retaliation claim, the Court found that no
representative could state that claim, either due to statute of limitations
problems or a failure to have been a tenant during the relevant time
period. And as with the habitability
claim, the Court agreed that a nuisance action depended heavily on facts unique
to each tenant, defeating commonality.

The Court declined to consider the many proposed adjustments
or amendments to claims or the class definition on Appeal, finding that such
arguments are, in the first instance, matters for the trial court.

United States Magistrate Judge Jan M. Adler (Southern District of California) denied a motion for class certification in a suit alleging improper practices and representations about a home warranty insurance product. Campion v. Old Republic Home Protection Co., Inc., 2011 WL 42759 (S.D.Cal. Jan. 06, 2011). The Court found that individual issues would predominate because each denial of warranty coverage would reuqire an inquiry into the basis for the denial. The Court also relied heavily on the construction of Tobacco II that was advanced in Cohen v. DirectTV, 178 Cal. App. 4th 966 (2009) when it refused to presume reliance on the part of absent class members.

After a bit of a lull on the class action front, the Ninth Circuit had a busy morning. Two major opinions on class action issues were just issued by Ninth Circuit panels, and both opinions are sure to generate a good deal of discussion. Both address areas of unsettled law among various federal courts. The first is of interest to wage & hour practitioners and the second addresses the argument that large statutory damage awards defeat "superiority" of the class action procedure:

Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) is something of a kitchen sink of class action issues. Among other things, the Ninth Circuit affirmed (1) the concurrent prosecution of a FLSA opt-in collective action and a Rule 23 opt-out class action, (2) the invalidation of Rule 23 opt-outs due to coercion, (3) the decision to conduct a corrective opt-out process after the trial, and (4) certification under Rule 23(b)(2). The Court also held that the UCL was not preempted by the FLSA.

Bateman v. American Multi-Cinema, Inc. (9th Cir. Sept. 27, 2010) concerned the singular issue of a class certification denial on superiority grounds. The Ninth Circuit concluded that none of the three grounds relied upon by the district court — the disproportionality between the potential statutory liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith compliance — justified the denial of class certification on superiority grounds.

Both opinions are substantial, and I will try to give both an extended treatment this evening. Full disclosure: Greg Karasik of Spiro Moss represents Plaintiff Bateman.

The Ninth Circuit giveth and it taketh away. On the one hand, the Fourth Amendment is better described as the Fourth Suggestion around these parts. But consumer class actions received a booster shot last week. In Wolin v. Jaguar Land Rover (9th Cir. Aug. 17, 2010), the Ninth Circuit reversed a denial of class certification in a consumer class action alleging a defective design in an automobile. Plaintiffs Gable and Wolin each brought a class action lawsuit against Jaguar Land Rover North America, LLC (“Land Rover”) alleging that Land Rover’s LR3 vehicles suffer from an alignment geometry defect that causes tires to wear prematurely. The district court declined to certify a class because Gable and Wolin were unable to prove that a majority of potential class members suffered from the consequences of the alleged alignment defect. The Ninth Circuit reversed.

The Court first examined commonality:

Federal Rule of Civil Procedure 23(a)(2) provides that “questions of law or fact common to the class” are a prerequisite to class certification. Commonality exists where class members’ “situations share a common issue of law or fact, and are sufficiently parallel to insure a vigorous and full presentation of all claims for relief.” Cal. Rural Legal Assistance, Inc. v. Legal Servs. Corp., 917 F.2d 1171, 1175 (9th Cir. 1990) (internal quotation marks and citation omitted). “The existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). [2]

Appellants easily satisfy the commonality requirement. The claims of all prospective class members involve the same alleged defect, covered by the same warranty, and found in vehicles of the same make and model. Appellants’ complaints set forth more than one issue that is common to the class, including: 1) whether the LR3’s alignment geometry was defective; 2) whether Land Rover was aware of this defect; 3) whether Land Rover concealed the nature of the defect; 4) whether Land Rover’s conduct violated the Michigan Consumer Protection Act or the Florida Deceptive and Unfair Trade Practices Act; and 5) whether Land Rover was obligated to pay for or repair the alleged defect pursuant to the express or implied terms of its warranties. These common core questions are sufficient to satisfy the commonality test. See Hanlon, 150 F.3d at 1019-20.

Slip op., at 11991. The Court then rejected the argument that individualized factors would affect tire wear: "What Land Rover argues is whether class members can win on the merits. For appellants’ claims regarding the existence of the defect and the defendant’s alleged violation of consumer protection laws, this inquiry does not overlap with the predominance test." Slip op., at 11993.

Then, discussing typicality, the Court made what is probably the most striking pronouncement of the opinion:

Whether they experienced premature tire wear at six months, nine months, or later goes to the extent of their damages and not whether named appellants “possess the same interest and suffer[ed] the same injury as the class members.” E. Tex. Motor Freight Sys. Inc. v. Rodriguez, 431 U.S. 395, 403 (1977) (internal quotation marks omitted). Typicality can be satisfied despite different factual circumstances surrounding the manifestation of the defect. See Daffin, 458 F.3d at 553. Gable and Wolin, like the rest of the class, may have a viable claim regardless of the manifestation of the defect. The fact that Gable and Wolin already received discounts and some free services also does not defeat typicality. See Lymburner v. U.S. Fin. Funds, Inc., 263 F.R.D. 534, 540 (N.D. Cal. 2010) (finding named plaintiff typical of class despite availability of plaintiff-specific remedy and finding “no authority for the argument that typicality is defeated because the remedies may be different for class members or that the availability of rescission as a remedy will monopolize this case”). Gable’s and Wolin’s claims are typical of the class.

Slip op., at 11996. Finally, the Court concluded that superiority is closely connected to commonality:

Appellants aver that no other prospective class members have filed other related actions, and Land Rover does not dispute this point. The amount of damages suffered by each class member is not large. Forcing individual vehicle owners to litigate their cases, particularly where common issues predominate for the proposed class, is an inferior method of adjudication.

Slip op., at 11997.

Fun fact: This same panel also heard the Mazza, et al. v. American Honda Motor Company case.

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